Once your children are accepted to college, you want to do everything you can to prepare them for this unique and rewarding journey. One of the largest and long-term decisions made by young adults in this process involves student loans, a financial commitment that can affect them for a considerable amount of time after graduation.
Due to the growing number of student loan debt, it is imperative that parents hold conversations with their children before they sign the paperwork. Here are four topics about student loans to discuss with your kids about student loans.
Simple Financial Terminology for Loans
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Student loans bring paperwork, all involving terminology that many young adults may be unfamiliar or uncomfortable with. Prior to any decision-making, make sure your children are knowledgeable on key terms that they will encounter when shopping for student loans. These words include deferment, interest, refinancing, consolidation, and repayment. The Office of the U.S. Department of Education provides a glossary of student loan terminology that could be helpful to reference.
How to Complete the FAFSA
The Free Application for Federal Student Aid (FAFSA) is a tool that students and parents use to ensure that the amount of financial aid they receive reflects the household income of the student. The online application is a fantastic opportunity for you and your children to discuss the financial standing of your household. A strong understanding of your household financial standing is essential to carefully choosing the loan that will satisfy your children’s educational needs. Complete the FAFSA form together, going through each section question carefully and encouraging your kids to ask questions.
Knowing the Difference Between Private and Federal Loans
The most common terminology involving student loans is private vs. federal. Private and federal student loans vary drastically in interest rates, deferment options, and other aspects. Therefore, it is essential that students understand the difference between these two major types of loans, so they can make the best possible decision when shopping.
How to Shop Smart, Not Hard
Once you and your children have reviewed the terminology and understand the basics of your household’s financial standing, it’s time to start shopping. One of the most important aspects of these decisions involved interest rates, which affects life after graduation. The interest rate should not only be reasonable financially, but the shortest repayment of the loan should be obtainable given the field of study of your child’s interest.
You can find services online that compare interest rates of private loans, so you can view the different loans side by side with your child. These websites are valuable resources that can immeasurably help you and your children in the decision-making process about their financial future.
Take a deep breath, make a cup of coffee, and sit with your children to discuss their financial freedom. Attendance of college carries countless avenues of excitement, and it is easy to become lost in the celebration. But the most important opportunity that this excitement brings is for you and your children to discuss finances and student loans, for this will undoubtedly aid them in their journey of success.